Big Picture: 

The trading of stocks and securities, while actively serving in the United States Congress, has the potential to create a significant conflict of interest between a congressperson's financial interests versus policies impacting the greater good. This policy proposal serves to eliminate this conflict of interest so that decisions are made without direct benefit to members of Congress.

Operative Definitions: 

1. Conflict of Interest: A widespread ethical standard that mandates that elected officials shouldn’t deal in public matters if they have a financial interest in them. For federal officials, this is codified in 18 U.S. Code § 208.
2. Covered Investment: Property of economic interest that insider trading regulations apply to. These include forms of obtained economic interest, including investments in a security, a commodity or a future. This definition does not apply to diversified funds, mutual funds, government bills and bonds, salaries or pensions.
3. Covered Persons: People upon whom insider trading regulations would apply. 
4. Blind Trust Fund: An independent, third-party entity that manages property on behalf of another party. 
5. STOCK Act of 2012: A law signed by President Barack Obama and designed to combat insider trading amongst Members of Congress.

Important Facts and Statistics: 

1. After private debriefings about the 2008 financial crisis, 34 members of Congress from both parties made stock trades of up to $600,000 in a single transaction. This allowed them to avoid heavy losses in the upcoming financial crash, and some even made money by taking short positions.
2. After private debriefings about the 2020 Covid pandemic, a group of lawmakers made stock trades of up to $1.6 million individually, evading losses in industries like hotels and airlines while investing further in telecommunications and networking companies to earn profits from the pandemic’s economic effects.
3. A 2021 study by Business Insider found that 57 members of Congress and over 100 other federal officials had violated conflict-of-interest laws in some capacity during their terms. 
4. The same study also found that punishments for violating conflict-of-interest laws were often waivable by Congress officials and most often were limited to fines of just $200.

Three-Point Plan: 

(1) Expand “covered persons” to include members of Congress’s spouses and dependents. In many cases, members of Congress coordinate their stockholding with their spouses and children. This raises a key concern in transparency in that it’s possible for lawmakers to personally profit from their knowledge without necessarily trading stock themselves. If conflict-of-interest regulation is to be effective, it should prevent these loopholes by applying to spouses and dependents, as well as sitting members of Congress.

(2) Ban covered persons from owning covered investments during congressional terms by implementing brief grace periods and blind trust funds. Members of Congress should not be able to bet on the very markets that they’re supposed to impartially regulate. However, restrictions don’t necessarily render elected officials destitute. Covered persons should be given grace periods of three to eight months to transition their covered investments into blind trust funds. This way, their property would be managed by third-party experts on their behalf. This would allow lawmakers to retain their economic security, just without the unfair advantages of political connections and classified information. 

(3) Increase the consequences if Members of Congress violate conflict-of-interest laws. As of right now, members of Congress face penalties a little more severe than an average parking ticket if they violate a conflict-of-interest law. Violating conflicts of interest reflect poorly on any leader’s commitment to their public causes, and the punishments for doing so should be severe enough to actively incentivize members to follow the rules and remain on the same playing field as the average investor.

Why This Initiative is Important: 

Members of Congress hold some of the most important economic duties in government and allowing them to profit from their decision-making greatly undermines the government’s integrity. In the wake of scandals following the 2008 and 2020 economic crises, this fact has never been clearer, and lawmakers are beginning to respond. Six different bills–many with widespread bipartisan support–have been proposed on Capitol Hill, and they would apply the very restrictions that have been discussed by this proposal. 

Economic Impact (From Our Student Economist Team): 

Banning congressional stock trading can be a measure to level the playing field for every individual investor in the United States who is involved in buying/selling stocks. Denying the members of Congress access to the private information about companies in the stock trading market will ensure that they are unable to secretly amass millions of dollars ($355 million in 2021) while the general population, who do not have access to that information, watch their earnings decline.

Acknowledgements: 

The following student(s) worked on this proposal: Robert Gan, University of California, Berkeley.

Sources: 

Levinthal, D. (2021, December 17). 'Conflicted Congress': Key findings from Insider's five-month investigation into
federal lawmakers' personal finances. Business Insider. Retrieved from
https://www.businessinsider.com/conflicted-congress-key-findings-stock-act-finances-investing-2021-12.

Kelly, J. (2022, April 14). Senators accused of insider trading, dumping stocks after coronavirus briefing. Forbes.
Retrieved from https://www.forbes.com/sites/jackkelly/2020/03/20/senators-accused-of-insider-trading-dumping-stocks-after-coronavirus-briefings/?sh=37990f514a45.

NBC Universal News Group. (2020, March 20). Burr, other senators under fire for stock sell-offs amid coronavirus
outbreak. NBCNews.com. Retrieved from https://www.nbcnews.com/politics/congress/aoc-calls-senate-intel-chair-richard-burr-resign-stock-selloff-n1164401.

Pub.L. 112-105 — 112th Congress (2011-2012): The STOCK Act, (2012, Mar. 20). https://www.congress.gov/112/plaws/publ105/PLAW-112publ105.html.

H.R. 336 — 117th Congress (2021-2022): TRUST in Congress Act, (2021, January 15).  https://www.congress.gov/bill/117th-congress/house-bill/336/text.

H.R. 1579 — 117th Congress (2021-2022): Ban Conflicted Trading Act, (2021, March 3).  https://www.congress.gov/bill/117th-congress/house-bill/1579/text.

S. 3494 — 117th Congress (2021-2022): Ban Congressional Stock Trading Act, (2022, January 12).  https://www.congress.gov/bill/117th-congress/senate-bill/3494/text.

S. 3504— 117th Congress (2021-2022): Banning Insider Trading in Congress Act, (2022, January 13).  https://www.congress.gov/bill/117th-congress/senate-bill/3504/text.

S. 3612— 117th Congress (2021-2022): Bipartisan Ban on Congressional Stock Ownership Act, (2022, February 9).  https://www.congress.gov/bill/117th-congress/senate-bill/3612/text.